AUCTION PREVIEW: ACGB Dec-34 Supply Due

The Australian Office of Financial Management (AOFM) will today sell A$800mn of the 3.50% 21 December 2034 bond, issue #TB168. The line was last sold on 21 June 2023 for A$700bn. The last sale drew an average yield of 3.9984%, at a high yield of 4.000% and was covered 3.8186x. There were 38 bidders, 13 of which were successful and 7 were allocated in full. The amount allotted at the highest yield as a percentage of the amount bid at that yield was 84.0%.

• Strong pricing seen at the last auction was likely influenced by several factors, including a substantially higher outright yield compared to the previous offering, a low level of issuance, and the line's hedgability as it is included in the XMM3 basket.
• This week's ACGB supply is higher compared to recent weeks (A$700mn). However, it still aligns with the positive fiscal backdrop highlighted in the June 2023 Issuance Program Update.
• Today's auction takes place following the release of the July RBA Minutes, which indicated that the decision was not "finely balanced." This potentially more optimistic sentiment towards the RBA's policy outlook could strengthen the bid, even with the larger bond size on offer.
• The line’s inclusion in the XMM3 basket, which enhances hedging opportunities, should remain a driver for demand.
• Although the outright yield remains comparable to the June outing, there is a noticeable steepening of the yield curve, which could potentially boost the overall bidding strength at today's auction.
• The potential need to increase the line "up to size" may however dampen demand.
• While there are factors that may constrain the overall strength of bidding, there is an expectation for continued firm pricing at today’s auction.
• Results are due at 0200BST/1100AEST.